14
THE CASE FOR THE INDUSTRY ...
civil aircraft, the Government will have to contribute a higher
proportion than in the past towards the launching costs of new
projects.
The record of Government financing is shown in Appendix
G. From the projects started between 1945 and 1959, under
one third of the Government contribution of £88 million has
been recovered, and not much more can be expected. On the
projects started since 1960, excluding the Concord, £39 million
has been spent. It is too early to know how much of this will
be recovered in the end, but the Ministry of Aviation do not
expect to recover all their investment.
The effort to establish a self-supporting British civil aircraft
industry has not yet succeeded.
CHAPTER 9
Financial Record
Between 1949 and 1956 the United Kingdom airframe and
aero-engine companies expanded steadily, increasing both their
capital employed (net assets) and profits. Profits were on average
around 18 per cent on capital employed.
In 1957, profitability started to decline but capital employed
continued to increase. In 1957 output stopped ^growing and
employment started to fall. Exports started to fall in 1958.
The low point was reached in 1961 when average profits were
only 5.9 per cent on capital. There was a rise in 1962 and
1963 but this was not maintained in 1964. Between 1960 and
1963 profit rates (expressed as a percentage of capital em-
ployed) were well below the averages for the engineering and
most other industries and for manufacturing industry gener-
ally. Those of the aircraft industry ranged between 5.9 per
cent and 9.4 per cent, compared with a range from 11.3 per
cent to 13.5 per cent for all British industry. The United States
aircraft industry has also had low profits. It has not been
possible to obtain figures comparable with the published British
figures but, expressed as a percentage of sales, profits in the
American industry have been between one third and one half
of those in manufacturing generally in the United States since
1959.
Before the reorganisation of the British aircraft industry
in 1959-60 the distinction between fixed-wing aircraft, heli-
copter, and engine manufacturers was not clear enough to
enable conclusions to be drawn on their relative profitability.
But the records of some companies stand out from the general
run. The Hawker Siddeley group of aircraft companies main-
tained a profit rate well above average. They made virtually
no civil aircraft during that period and their profit rates were
two to three times as high as those of other big companies
making civil as well as military aircraft. Rolls-Royce increased
their capital employed by about twice the average. Their profits
also increased more than the average, but the rate of profit
on capital declined. Westlands increased profits twenty-four-
fold and capital employed seven-fold. This was partly through
acquiring other helicopter interests.
Since 1960 the aero-engine companies have in general earned
higher rates of profit than the fixed-wing airframe companies.
Westlands have continued to earn profit rates much higher than
average.
Much of the industry's capital has been obtained by borrow-
ing. In 1961, 47 per cent of the physical assets was financed
in this way, compared with 4 per cent in industry generally.
Even this comparison does not fully show how much the
industry depends on borrowed money. Any work in progress
which is financed by progress payments is not treated as part
of physical assets, and much more work is financed in this way
in the aircraft industry than in industry generally.
CHAPTER 10
Some other Factors
The record of the industry just described is disappointing
We have already indicated how changes in technology and
strategy have contributed to the industry's tribulations This
is not the whole story.
The evidence given to us has pointed to many shortcomings
FLIGHT International, 6 January /?«
in the way Britain has gone about the business of making
aircraft. We have not tried to analyse every allegation of mis-
takes made in selecting and carrying out aircraft projects and
we do not propose to reproduce the evidence from witnesses
Nor shall we try to apportion the blame between Government
and industry for misjudgments with which both were associated.
The present need is less for a detailed post-mortem than for
constructive thinking about the future.
Nevertheless we were impressed by how often some criti-
cisms recurred. We think there is substance in several of these
and that the shortcomings can to some extent be corrected.
We shall be dealing in detail with the principal criticisms later
in the report. We list them here, lest we give the impression
that we believe environmental factors alone to have been
responsible for all the industry's troubles:
(a) Erratic Government policy in defence procurement dur-
ing the last decade has denied industry the consistent
objectives and stable programme needed for success.
(b) Delays within the Government in deciding whether new
military and civil projects should be started have handi-
capped British manufacturers in competing with foreign
rivals.
(c) New weapon systems have often been too ambitious in
technical scope and refinement. The full complexity,
cost and time-scales have not been foreseen until the
projects were well under way. As a result, requirements
have sometimes been substantially changed or projects
abruptly cancelled.
(d) Specifications for past aircraft types, military and civil,
have been too uncompromisingly linked to the special
needs of home users, the Services or the airline corpora-
tions as the case may be. This has made it harder to
sell aircraft overseas.
(e) In general, the market research carried out by industry
before launching new projects has been inadequate.
(/) Detailed financial and technical control by the Govern-
ment of work done for it has hampered efficient man-
agement in the industry.
(g) The efforts of Government and industry to promote
exports have not matched those of other countries, in
particular the United States.
(h) The manufacturers have often failed by substantial mar-
gins to meet delivery promises, thereby disrupting the
plans of the Services and civil operators.
(0 Productivity in the British industry has compared un-
favourably with that in the American industry.
(/) The reorganisation of the industry following the mergers
of 1960 was slow and is still incomplete.
SECTION IV.—THE CASE FOR AN AIRCRAFT
INDUSTRY ?.:
CHAPTER 11 :•-•
General Considerations
In recent years there have been successes with a few isolated
projects. The reputaf-jn of the aero-engine firms remains high,
but over the industry as a whole the picture is depressing.
Large amounts of public and private money have been absorbed
without a satisfactory return. The military programme has been
overshadowed by massive cancellations. The image of the
industry has become tarnished, and the airframe manufacturers
in particular have been criticised at home and abroad.
It is therefore not surprising that some people should ask
whether it is worthwhile having an aircraft industry at all.
Not long ago such a suggestion would not have been seriously
contemplated. In the circumstances of today, it is necessary to
consider the industry's future in the most radical way. This
we have tried to do.
The aircraft industry differs from most other industries in
tnat it depends on the Government for its very existence. An
examination of the proper future role of, say, the motor-car or
machine-tool or chemical industries might lead to suggestions
or ways in which Government could help the industry to
cftange its size or structure or efficiency But any Government
action would be marginal. On the other hand, a decision to